False Economy: Why Abolishing Stamp Duty for First Home Buyers is a Fail

stampduty

Stamp duty taxes in Victoria are legitimately bonkers. They’re at genuine You’re in a cult call your Dad’levels of crazy. An archaic tax which was never meant to actively disadvantage property purchasers at the extortionate rate it does today, the State Government of Victoria’s coffers are filled courtesy of our love of real estate. And whilst it makes sense to update this rough tax lever from days of yore, there’s no political will from either side of the fence to amend the percentage of stamp duty taxes we pay – our economy relies too heavily upon it.

At a ridiculously huge 5% of the value of a property, Victorian Stamp Duty taxes equate to approximately $30,000 on a $600,000 mortgage. $30,000 ain’t small potatoes in anyone’s language. That amount of cold hard cash could pay for a hipster wedding, replete with taco-truck and Snapchat-station. It could furnish a home with a mixture of IKEA and one carefully chosen couch from West Elm. It could pay off a portion of your HECs debt. First home buyers have a lot of things they could spend their $30,000 stamp duty fees on, which is why Dan Andrews’ announcement that the State of Victoria will abolish these taxes for newbie home buyers purchasing properties up to $600,000 has been such a hit.

The bad news is, abolishing stamp duty fees for first home buyers only makes it harder for them to buy property. I’ve got a lot of time for Dan Andrews (I even call him Dan, which means we’re bonfide mates). I’m a pinko-lefty, and I’ve been impressed as he has developed into a great communicator and a good Premier. And I understand why he’s made the move to abolish stamp duty fees: it buys him more political capital in the leadup to an election, and it’s hard to argue with the benefit of abolishing such a tax for a group doing it tough.

But it’s false economy, because stamp duty isn’t the barrier to first home ownership. 

Wider economic issues which can only be fixed at a Federal level are those which are disadvantaging first home buyers. And whilst Dan’s olive-leaf offering to first home buyers makes everyone feel kinda good, it’s a butterflies-in-the-tummy moment with a high price to pay. It’s the tax-policy version of diuretic romantic movie The Notebook: it makes you feel something in the moment, but you know it’s not good for you in the long-run.

Abolishing stamp duty taxes will fuel demand in a property market which is already fiercely competitive and difficult for first home buyers. It gives a false sense of richesse, intimating that newbie property owners have another $30,000 or so in their back pockets to spend. And whilst $30,000 is nothing to sneeze at if you’ve got it in the palm of your hand – in the life of a 30-year mortgage, it makes little difference to your purchasing capacity.

The barriers to property ownership for first home buyers are:

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  • Deposit

Accruing a 10 – 20% deposit on a property is a Herculean task. It can feel particularly Sisyphean (see, arts graduates go everywhere) as prices soar ever-higher around you, whilst you continue to sock away $500 bucks a month for your deposit. This is obviously depressing for first home buyers, and a true disadvantage for those who can’t move in with the parentals to save for a deposit. With Melbourne rents being what they are, saving for a deposit is a true barrier to lending.

Rather than offering a nominal $30,000 reduction in stamp duty (which isn’t giving you cash, it’s just a commitment not to charge you anything), why couldn’t the State Government enter into  guarantor scheme with lenders, allowing purchasers to fast-track their deposit on HECs-like repayment loans? That’s would be a genuine hand-up. (Which would probably also inflate property prices if our interest rates remain at such lows – but it’s true action rather than a gesture.)

  • The Cash Rate

The national cash rate is too low. Whilst banking institutions are slowly raising rates independently and limiting some kinds of lending, the Reserve Bank of Australia have left the cash rate too low, for too long. People are able to borrow huge amounts of money for very little. Those who have equity – i.e. those already in the market and Baby Boomers in particular – are taking advantage of these conditions. This bombastic pairing of great equity earned from 20 years in the property market with ultra-low interest rates explain why first home owners represent such a small percentage of those purchasing real estate in Australia. They can’t compete. And all that cheap lending is no good for our nation more generally – where can we go next time there’s an economic crisis? Rates must go up, to both slow the pace of property transactions and to safeguard our economy for the bumps that are bound to come in the future. It’s actually making interest rates more expensive that will even the playing field for first home owners – not the omission of $30,000 from their mortgage.

  • Negative Gearing

The big one. Negative gearing actively disadvantages first home buyers in a wholesale manner that no stamp duty amnesty can ever address. Australians look to property as a safe way of building wealth and security for the future. They know superannuation won’t really help them – because whilst there are multi-millionaires with lush super balances – your average Mum and Dad will need to invest in order to retire with any modicum of comfort. So – property and negative gearing has been our national panacea. Those who have property assets have seen them grow – exponentially – over the past two decades. One couldn’t save at the rate a property in an in-demand local is growing at the moment. These property owners are now unlocking that equity to buy up big – benefiting from tax benefits which make it easier for them to own and maintain multiple properties than it is for a newbie  buyer to stake their claim on a Title.

Without changes to our negative gearing tax laws, we are impoverishing younger generations. At the very least, we’re creating a future where individual wealth will be dynastic in nature, with Mummy and Daddy allowing their children the chance at home ownership. If you come from disadvantage, it’s game over. Now, I’m not necessarily saying that we destroy the whole kit and caboodle – but that negative gearing should be amended or abridged to limit the kind of property an investor can negatively gear, the value of the property an investor can negatively gear and the amount of property an investor can negatively gear. 

Realtalk: abolishing stamp duty for first home buyers is an appealing gesture. But it’s an impotent action which only compounds demand in a market starved of supply. It diminishes the ability of first home buyers to purchase property. It’s a sugar-high with one bad hombre of a comedown. It compounds the effect that the true barriers to first home ownership present – and if the Federal Government don’t take action by working with lending institutions on equitable deposit terms, by amending negative gearing taxation laws and by working with the RBA to lift the national cash rate – future generations will be locked out of the property market.

PS for First Home Buyers: If the ship’s going down, make sure you spend your $30,000 with gusto and enjoy a frickin’ deluxe taco-truck wedding with a meme-inspired pinata. Treat yo’self, because it doesn’t look like the ruling elite ever will. #BAM

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